Friday, December 1, 2017

Adam Smith: is democracy always better for the poor?

Who
has read Adam Smith’s Chapter 7, Book IV in The Wealth
of Nations? It is an unusual chapter, located towards the end of book (Book
IV) that deals with the systems of political economy, more exactly with
mercantilism (and physiocracy briefly at the end), and discusses at great
length mercantilist trade policies of European empires from Portugal to England.
It is no surprise that Adam Smith has very few nice words for imperial policies,
including ban on production of goods that may compete with metropoles’ production
(like the famous case of steel in North America), prohibition of direct exports
to other markets than metropole’s, and obligation to carry trade using metropoles’
ships (the Navigation Act). Smith is even more scathing about merchant
companies, the two famous East India Companies, the Dutch and the English (“The
government of an exclusive company of merchants is, perhaps, the worst of all
governments for any country whatever”).

The
chapter “On colonies” is the second longest chapter in the Wealth of Nations. In the edition I was using, it has more than 100
pages which is about 8% of the entire book (the whole book is about 1200 pages
long in the same edition). Having been written in 1774, it spends considerable
time on North Americaand the “disturbances”
that were brewing there. As is well known, Smith was right in both seeing the
inevitability of American secession and in forecasting the great future for the
continent.

But
he also presented a ledger where the British expenses on behalf of American
colonists were much greater than what Britain received in return (“under the
present system of management, therefore, Great Britain derives nothing but loss
from the dominion which she assumes over her colonies”)--and this despite discriminatory
trade policies mentioned in the previous paragraph. He explained British stubbornness
in not granting independence by pride (“No nation ever voluntarily gave up the
dominion of any province, how troublesome soever it might be to govern it, and
how small soever the revenue which it afforded might be in proportion to the expense
which it occasioned”) but also, and importantly, by the economic interests of
the English elite that, unlike ordinary people, did benefit from colonies:
“[granting of independence] is always contrary to the private interest of the
governing part of [a nation], who would thereby be deprived of the disposal of
many places of trust and profit, of many opportunities of acquiring wealth and
distinction, which the possession of the most turbulent, and, to the great body
of the people, the most unprofitable province seldom fails to afford”.

This
Smithian sharp distinction within the metropole between the interests of the elite
and the rest of the population is something that Thomas Hauner, Suresh Naiduand I use in the forthcoming paper on the world prior to 1914 to argue that the
imperialist expansion in the 19th century was driven by the narrow
interests of the metropoles’ rich, that is, by the people who disproportionally
owned colonial assets which provided them with returns superior to what they could
have obtained at home. Now, we can “rope” in Adam Smith to our case, in a foundational
book on political economy written more than a century before the period we discuss.
(We do not quote Smith in the current version of the paper but might decide to
do so in the next.)

Overall,
Smith comes to the conclusion that British colonies are treated better than any
others,but in one very important
respect he qualifies this statement. It
is in relation to the treatment of slaves. There he makes an interesting, and I
think not sufficiently appreciated (at least I have not seen it mentioned), observation.
More democratically-governed colonies (like the British) treat slaves worse
because the elite which, in a system of oligarchic republicanism, controls the
levels of power is reluctant to punish its own members who are particularly brutal
towards slaves. An authoritarian or autocratic state however has less
compunction about punishing members of the elite whose behavior is especially outrageous
(even if the state does not care much for the welfare of slaves as such). Here
is the full quote from Smith:

In every country where the unfortunate
law of slavery is established, the magistrate, when he protects the slave,
intermeddles in some measure in the management of the private property of the
master; and, in a free country, where the master is perhaps either a member of
the colony assembly, or an elector of such a member, he dare not do this but
with the greatest caution and circumspection. The respect which he is obliged
to pay to the master renders it more difficult for him to protect the slave.
But in a country where the government is in a great measure arbitrary, where it
is usual for the magistrate to intermeddle even in the management of the
private property of individuals, and to send them, perhaps, a lettre de cachet
if they do not manage it according to his liking, it is much easier for him to
give some protection to the slave; and common humanity naturally disposes him
to do so. The protection of the magistrate renders the slave less contemptible
in the eyes of his master, who is thereby induced to consider him with more regard,
and to treat him with more gentleness.

That the condition of a slave is
better under an arbitrary than under a free government is, I believe, supported
by the history of all ages and nations.

Smith’s lesson here has broader applicability. An oligarchic democracy
may be worse for the poor than an arbitrary government. A state, relatively autonomous
from the elite, may care more about the “general interest” than an ostensibly
democratic government that is in reality the government of the rich. Smith highlights, I think, in both his
discussion of social cleavage in interests when it comes to colonies and in his
discussion of slavery, the ambivalence of the connection between the state and
class. In more democratic (but exclusivist) settings the state may be less autonomous
and more directly “hitched” to the interests of the ruling class. In an autocracy,
the state may be less subject to the power of moneyed interests, and more
concerned with the position of the poor. Our facile and somewhat lazy approach that
more democracy implies a greater concern or improvement for the poor is shown
here, by the founder of political economy, to be possibly—at times—wrong.